Tag Archives: resources

The TSX Composite Index: No longer a Second-Class Citizen?

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Photo courtesy of rawpixel.com.

By Noah Solomon

Special to the Financial Independence Hub

Canadian stocks have had a very decent run since the global financial crisis of 2008. From December 31, 2008, through the end of last year, the TSX Composite Index returned an annualized 10.1%. This pales in comparison to the performance of the S&P 500 Index, which has risen at an annualized rate of 16.1%. Had you invested $1 million in the TSX Composite Index at the end of 2008, your investment would have been worth $3,477,264 at the end of last year. By comparison, the same investment in the S&P 500 Index would have a value of $6,873,269, which is a stunning $3,396,005 more than the Canadian investment.

Looking for Love in all the wrong places

The composition of the Canadian stock market is dramatically different than that of its southern neighbor. As the table below illustrates, there are a handful of sectors that feature either far more or less prominently in the TSX Composite Index than in the S&P 500. Specifically, Canadian stocks are far more concentrated in financial, energy, and materials companies, while the U.S. market is more concentrated in the technology, health care, and consumer discretionary sectors.

TSX Composite Index vs. S&P 500 Index: Sector Weights (Dec. 31, 2021)

In 1980, the song “Lookin’ for Love,” by American country music singer Johnny Lee was released on the soundtrack to the film Urban Cowboy. The tune’s iconic lyric, “Lookin’ for love in all the wrong places,” serves as a fitting description of the dramatic underperformance of the TSX vs. the S&P 500. The majority of disparity in performance between the two indexes can be explained by their different sectoral weightings. When financial, energy, and materials stocks outperform their counterparts in the information technology, health care and consumer discretionary sectors, it is highly likely that the TSX will outperform the S&P 500, and vice-versa.

Over the past two years ending December 31, 2021, the information technology sector has been the star performer both in Canada and the U.S. Interestingly, the TSX technology index fared better than its U.S. peer, returning 113.9% vs. 92.4%. However, due to the far greater weighting of tech companies in the S&P 500 than in the TSX (23.2% vs. 5.7% as of the end of 2019), tech stocks have had a far greater impact on the returns of the S&P 500 than on the TSX. On the other hand, financial, energy, and materials stocks were all underperformers on both sides of the border, which served as a drag on the performance of Canadian relative to U.S. stocks.

Macro Drivers and Tipping Points: It’s About Growth & Oil

Given that differing sector weightings account for the lion’s share of performance disparities between Canadian and U.S. stocks, it is essential to determine the macroeconomic factors that have historically caused certain sectors to out/underperform others, and by extension TSX outperformance or underperformance. Continue Reading…

Time for investors to look at the Canadian energy sector?

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Image by Omni Matryx from Pixabay

 

 

 

 

 

 

 

 

 

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

The Canadian energy sector has been beaten up. Foreign investors have given up and so have many Canadian investors. Where there is incredible pessimism there can be incredible rewards. But there is certainly no guarantee that the pessimism for the Canadian energy patch is not deserved. That said, it is also certainly possible that the pessimism has jumped the shark. There may be incredible value in the energy sector for Canadian investors.

Off the top I am guilty of previously piling on with the pessimism. For Million Dollar Journey I had penned on Canadian energy stocks and their dividends.

The Canadian energy sector ETFs fell by some 70% in the stock market correction of March and into April. We have seen some slight recovery as the North American and Global economic recovery takes shape.

The need for oil and gas is not going away

While I am certainly a fan of the global move to green energy solutions, the shift will take some time. Perhaps it will take decades. And even during a robust transition to renewable energy, oil and gas will continue to play a leading role. We need natural gas to heat our homes and power our economy. And while the shift to electric vehicles attracts all of the headlines and much of the attention of investors, traditional gas powered vehicle sales will continue to dominate. We will need oil for various forms of transportation.

From the IEA …

Sales of electric cars topped 2.1 million globally in 2019, surpassing 2018 – already a record year – to boost the stock to 7.2 million electric cars. Electric cars, which accounted for 2.6% of global car sales and about 1% of global car stock in 2019, registered a 40% year-on-year increase.

It’s certainly a promising trend.

Millions of global sales – Electric vehicles

From that IEA report …

The Sustainable Development Scenario incorporates the targets of the EV30@30 Campaign to collectively reach a 30% market share for electric vehicles in all modes except two-wheelers by 2030.

And all of the above takes place as overall demand for vehicles increases. The need for oil will remain with us for quite some time under most projections. Oil demand will be driven by airlines and other industrial use as well.

We’ll need to move that oil and gas

Let’s start with the pipelines that move the oil and gas around North America. The two leaders are Enbridge and TP Energy (formerly TransCanada Pipelines). These two stocks are starting to get the attention of analysts and writers. Full disclosure: I own these two companies in my concentrated Canadian wide moat portfolio. Continue Reading…